Craft Brew Alliance Reports Third Quarter 2012 Results

PORTLAND, OR — Craft Brew Alliance, Inc. (“CBA”) (Nasdaq: BREW), an independent craft brewing company, reported net sales of $127.4 million and net income of $2.2 million for the nine months ended September 30, 2012, as compared with net sales of $114.3 million and net income of $9.4 million a year ago, which included an after-tax gain of $6.5 million from the sale of our minority interest in Fulton Street Brewery, LLC (“FSB”). Earnings per share (“EPS”) on a fully diluted basis for the year-to-date period were $0.12 as compared with $0.50 for the same period last year, which included $0.34 from the FSB sale.

Significant year-to-date highlights include:

Net sales increased $13.1 million, or 11%, to $127.4 million versus last year

Total beer shipments increased 6%, while depletions grew 5% for the period

Gross profit percentage of 30.4% as compared to 31.0% last year

Cash provided by operations increased to $10.0 million for the period compared to $5.0 million last year

Introduction of Omission beer, the first craft beer brand in the United States focused exclusively on brewing great tasting traditional craft beers that are specially crafted to remove gluten

Introduction of Kona Big Wave Golden Ale to the mainland, previously only available in Hawaii

Introduction of two brands in 12-ounce aluminum cans

Revised full year guidance calls for depletion growth of 6-8% and revenue growth of 11-13% with fully diluted EPS guidance of $0.12-$0.17

“We are pleased with the progress of our portfolio strategy and are looking forward to a strong 4th quarter,” said Terry Michaelson, CBA’s CEO. “While we had anticipated better financial performance during the third quarter, we feel strongly about our unique and advantaged strategy in the craft beer segment. Heading into the remainder of 2012, we are very encouraged by the current industry off-premise data which shows our Kona and Redhook brand families to be outpacing a number of our large craft beer competitors.”

Financial Outlook:

Based on year-to-date and anticipated future performance levels, we are updating components of our 2012 guidance as follows. Full year selling, general and administrative (“SG&A”) and capital expenditure guidance remains unchanged.

Depletion growth estimate of 6% to 8%, reflecting the continued strength of the Kona, Redhook and Omission brands offset by softness in the Widmer Brothers brand. Previous guidance was 8% to 10%.

Sales growth of approximately 11% to 13%. Previous guidance was 13% to 15%.

SG&A expense ranging from $43 million to $45 million, reflecting continued investment in sales and marketing initiatives. No change from previous guidance.

Diluted EPS in the range of $0.12 to $0.17. Previous guidance was $0.20 to $0.25.

Capital expenditures of approximately $8.5 million to $9.5 million, continuing our investments in capacity and efficiency improvements, and quality initiatives. No change from previous guidance.

We will provide our full-year 2013 financial outlook as we complete our 2013 planning process within the next two months. In 2013, we expect meaningful growth in both revenue and earnings reflecting the overall strength of our portfolio strategy, operating expense leverage and SG&A leverage.

Operating Results:

Net sales for the nine months ended September 30, 2012 were $127.4 million, an increase of $13.1 million, or 11%, from net sales of $114.3 million for the same period of 2011. A combination of factors drove the increase, including increased shipments, a decrease in master distributor fees, price increases for our beers sold to wholesalers and an increase in revenues earned from our pubs.

Net sales for the quarter ended September 30, 2012 were $44.6 million, an increase of $4.1 million, or 10%, from net sales of $40.5 million for the same quarter last year, primarily as a result of price increases for our beers sold to wholesalers and an increase in revenues earned from our pubs. Net income for the quarter ended September 30, 2012 was $0.9 million, or $0.05 per diluted share. This was a decrease of $0.3 million from our net income of $1.2 million, or $0.07 per diluted share, for the same quarter in 2011, primarily as a result of additional commercial operation spending targeted towards accelerating existing brands, introducing new brands, and continuing the build-out of our national sales team.

Total shipments for the nine-month period ended September 30, 2012 grew 6% to 549,700 barrels, an increase of 29,200 barrels, from 520,500 barrels for the same period of 2011, primarily reflecting the increase in shipments to wholesalers. Total shipments for the quarter also grew, up 7,800 barrels, or 4%, to 189,300 barrels from last year, also as a result of increased shipments to wholesalers. Partially offsetting the increase in the third quarter was a decline in contract brewing shipments as a result of terminating our contract brewing agreement with FSB.

Gross margin as a percentage of net sales declined 62 basis points for the nine months ended September 30, 2012, reflecting increased distribution and grain costs in the first nine months of 2012 as compared with the same period of 2011. These unfavorable factors were partially offset by decreased distributor fees and increased selling prices for our beers.

SG&A expense of $34.5 million for the nine-month period ended September 30, 2012 increased $4.0 million, or 13%, from $30.5 million for the same period of 2011. As discussed above, this increase reflects our continuing investment in commercial operation initiatives to remain a leader in the intensely competitive craft beer segment. The increase in SG&A was partially offset by lower packaging design and development costs.

“Our year-to-date sales growth of 11% along with strong cash flows demonstrate the fundamental strength of our business and strategy,” said Mark Moreland, CBA’s CFO. “We have revised our sales, gross margin and EPS guidance for 2012 as we were anticipating both faster traction from key in-market initiatives which have begun to generate results in the fourth quarter and higher second half gross margin. While not satisfied with our projected full year performance, we are confident that our investments in our brands, sales and operating infrastructure will drive significant long-term top-line growth and improved profitability.”

Cash Flow and Liquidity:

Our cash and cash equivalent balance was $3.5 million, an increase of $2.9 million year-to-date. Cash provided by operating activities was $10.0 million for the nine months ended September 30, 2012 compared with $5.0 million for the same period of 2011. The $5.0 million increase was primarily due to improved working capital. Capital expenditures for the nine-month periods ended September 30, 2012 and 2011 were $7.8 million and $6.6 million, respectively. Capital expenditures in both periods included projects designed to increase our capacity and improve efficiency.

Forward-Looking Statements:

Statements made in this press release that state the Company’s or management’s intentions, hopes, beliefs, expectations or predictions of the future, including depletions and sales growth, the level or effect of SG&A expense, the amount of capital spending, and the benefits or improvements to be realized from strategic initiatives and capital projects, are forward-looking statements. It is important to note that the Company’s actual results could differ materially from those projected in such forward-looking statements. Additional information concerning factors that could cause actual results to differ materially from those in the forward-looking statements is contained from time to time in the Company’s SEC filings, including, but not limited to, the Company’s report on Form 10-K for the year ended December 31, 2011. Copies of these documents may be found on the Company’s website, www.craftbrew.com, or obtained by contacting the Company or the SEC.

About Craft Brew Alliance:

CBA is an independent, publicly traded craft brewing company that was formed with the merger of leading Pacific Northwest craft brewers — Widmer Brothers Brewing and Redhook Ale Brewery — in 2008. With an eye toward preserving and growing one-of-a-kind craft beers and brands, CBA was joined by Kona Brewing Company in 2010. Craft Brew Alliance launched Omission beer in 2012.

When Kurt & Rob Widmer founded Widmer Brothers Brewing in 1984, they didn’t confine their brewing exploration to strict style guidelines. To this day, Widmer Brothers continues to create craft beers with a unique and unconventional twist on traditional styles that are award winning and please a wide range of craft beer lovers. Redhook began in a Seattle transmission shop in 1981 and those colorful roots are reflected in the brand’s personality to this day. The eminently drinkable beers consistently win awards and please crowds across the United States. Kona Brewing was founded in 1994 by the father and son team of Cameron Healy and Spoon Khalsa, who dreamed of crafting fresh, local-island brews with spirit, passion and quality. As the largest craft brewery in Hawaii, Kona personifies the laid-back, passionate lifestyle and environmental respect of the Hawaiian people and culture. Omission beer is the first craft beer brand in the United States focused exclusively on brewing great tasting craft beers with traditional beer ingredients, including malted barley, that are specially crafted to remove gluten.